Gloria's energy program

Today is the last day of the "pre-summit" of the 2008 Philippine Energy Summit that the Energy Department is organizing. The summit proper is actually on February 5 where the event's outputs and action plans shall be presented to Mrs. Gloria Arroyo, who is expected to give a keynote address to the participants.

I have been doubtful about the real agenda of the Energy Summit since Mrs. Arroyo announced it in the first week of January. Malacañang's announcement of the activity came amid the reported $100 per barrel oil in the global futures market that triggered renewed calls from various sectors and legislators to repeal the 12% value added tax (VAT) on petroleum products and repeal the Oil Deregulation Law (ODL). Based on the organizers' initial pronouncements, I sensed that the Energy Summit is some sort of a publicity ploy to give the public the impression that the government is willing to listen and is actually responding to the people's urgent demands.

Yet, as the national debate on what concrete and immediately doable options are available for the government raged on after the Energy Summit was announced, it became clearer that this regime is not about to give up the 12% oil VAT if only to provide some breathing space to the ordinary income earners who could no longer cope with exorbitant and escalating pump prices. Nor is it ready to seriously rethink the deregulation policy that allows oil firms to automatically implement oil price hikes. Instead, Mrs. Arroyo issued an executive order lowering the tariffs on crude oil and petroleum product imports based on certain trigger prices in the global spot markets. The tariff cut resulted in a P1 per liter rollback in the prices of diesel, suspiciously announced to coincide with the Energy Summit's opening.

Energy Secretary Angelo Reyes, in his opening remarks at the Energy Summit, finally admitted that the activity does not aim to "solve high oil prices" but intends to forge "consensus on recommended policies that will reduce our vulnerability to world oil prices". And for the government, that means pursuing the development of renewable energy in the medium and long term, which is what the Energy Summit is all about.

Here lie the fundamental problems of the Arroyo regime's approach to the energy sector. First, the quick-fix oil tariff cut, in reality, has an insignificant impact on ordinary oil consumers. It did reduce diesel prices by P1 per liter but the prices of other petroleum products like gasoline, kerosene, and LPG that are commonly used by the people for their livelihood and daily household consumption remained unchanged. In addition, this amount will be easily wiped out in two or three weeks of sustained high global oil prices.

Compare it with the potential impact of lifting the 12% oil VAT. Immediately, it could bring down the pump prices by at least P4 per liter across various petroleum products and not only diesel. LPG cost could go down by around P59 per ordinary (11 kg cylinder) tank. As a result, the daily income of jeepney drivers could go up by around P123 and that of tricycle drivers by P19. Small fishers could expect an increase in their income of as much as P49 per fishing trip. These three sectors alone represent around 1.72 million people, excluding members of their families who also rely on their income. Furthermore, 8.6 million households will see their monthly spending on LPG fall by around P169 while 9.4 million households (particularly in the countryside and in urban poor communities) will experience a reduction of P20 per month on their kerosene spending.

The Arroyo regime's economic managers paint a doomsday scenario once the oil VAT is removed, citing dire warnings from credit rating agencies like Moody's and multilateral financial institutions like the IMF about the harmful effects it could create on the country's fiscal situation. We could not afford it, they say, especially now that the government is on the verge of totally reversing the fiscal crisis. Well, I suggest that finance and budget officials ride a jeepney and tell the poor tsuper that he must pay P120 more for diesel because the government needs the money to balance its budget and address the fiscal problem. For the poor, a healthy fiscal condition means nothing, especially if it does not translate to improved incomes and livelihood, more jobs, more food on their table, not to mention decent, social services. As for the need to raise revenues, the government argues as if it has nothing more to collect but the oil VAT when in 2006 alone, it failed to collect P82 billion in income taxes from corporations, P28 billion more than what the government expects to collect from the oil VAT this year. Where is the logic, and justice, here?

Even the pump price reduction that the lifting of the oil VAT could create may be offset in several months when global oil prices continue their uptrend. To address this, a repeal of the ODL must be pursued to ensure reasonable domestic pump prices. The ODL has been a gross failure – until today, more than 90% of domestic petroleum sales and more than 90% of the total number of gasoline stations nationwide are still controlled by the Big Three while 100% of the country's refining capacity is monopolized by Petron and Shell.

Meanwhile, the people are burdened with steep and frequent oil price hikes as a result of automatic price adjustments under the ODL, with the average retail price of all petroleum products jumping by 576% since the policy was first implemented in 1996.

ODL and free market apologists would dismiss the call for state regulation as empty propaganda but I urge genuinely concerned policy makers, academics, and experts to read House Bills 3029, 3030, and 3031 that are currently pending at the House of Representatives. These legislative proposals, jointly filed by party-list groups Anakpawis, Bayan Muna, and Gabriela Women's Party, outline concrete and detailed provisions on how we can implement the regulation of the downstream oil industry.

The second major point I want to make pertains to the agenda of the Energy Summit to pursue renewable energy over the medium and long term. Let me state first that the development of alternative, clean, and indigenous sources of energy must be pursued. If we seriously intend to achieve genuine and sustainable national industrialization, it is indispensable that we attain energy independence and security.

But my problem with the Arroyo regime's energy program is that it relies too much on foreign capital, technology, and markets. Thus, in the process, it has reduced energy independence and security into a program of attracting foreign investments and plunder, instead of developing and utilizing indigenous energy resources for industrialization. The government has been doing this since the 1990s and with dire consequences on the economy and the people.

Look the at the country's power sector reforms that began under President Ramos where the government aggressively pursued the privatization of the country's power generation resources. The program resulted in onerous power supply contracts, bled government coffers dry, and unjustly bloated the consumers' electricity bills. Mrs. Arroyo has continued to pursue this path under the EPIRA since 2001.

Another case is the Malampaya natural gas project, which is controlled by Shell and Chevron. Malampaya also contains crude oil reserves but its development has been greatly delayed because the foreign operators refused to develop it since they are already making billions of pesos in profits from extracting natural gas. In 2001, Shell and Chevron pumped crude oil from Malampaya as part of an extended well test but exported it to South Korea .

The Biofuels Act of 2006, meanwhile, is feared not only to cause environmental problems and undermine food security but also threatens to further concentrate vast tracts of agricultural lands in the hands of foreign agribusiness corporations and local comprador-landlords at the expense of genuine agrarian reform. Renewable energy development, as promoted in the Energy Summit and with funding support from the ADB, World Bank, USAID, and JICA, will be pursued within the same flawed framework. This leaves little or no hope that the country's energy resources, including renewables, will be used to serve the people and genuine national industrialization. #

*Published in Business World
1-2 February 2008